By
Ibad Aslam

InterPress Service
January 10, 2000

Washington (IPS) - Washington policy-makers have coddled
investors at the expense of workers in their response to the Asian
financial crisis - so says Joseph Stiglitz, senior vice president
and chief economist at the World Bank.

Since joining the global lender three years ago, Stiglitz has
been the most visible internal critic of efforts by the Bank,
International Monetary Fund (IMF) and US Treasury efforts to
contain the financial blaze as it swept the region in 1997-98 and
then to repair the damage done.
The former top economic adviser to US President Bill Clinton,
in a weekend speech to the American Economics Association in the
northeast US city of Boston, also assailed Washington's pursuit of
free capital movement.

"Capital market liberalisation has not only not brought people
the prosperity they were promised, but it has also brought these
crises, with wages falling 20 or 30 percent and unemployment going
up by a factor of two, three, four or 10," declared Stiglitz, who
leaves the Bank later this month.

When Asian governments were forced to accept financial relief
coordinated by the IMF, Washington imposed conditions that clearly
targeted ordinary workers, Stiglitz asserted. "A standard message
was to increase labour market flexibility, and the not-so-subtle
subtext was to lower wages and lay off workers," he said.

"In East Asia, it was reckless lending by international banks
and other financial institutions, combined with reckless borrowing
by domestic financial institutions...which may have precipitated
the crisis. But the costs, in terms of soaring unemployment and
plummeting wages, were borne by the workers," Stiglitz said in
remarks which won a standing ovation from fellow economists.

International lenders met the crisis by encouraging countries
to erect social safety nets to catch those laid off in the
post-crisis recessions, he acknowledged. However, "there is no
safety net that can fully replace the security provided by an
economy running at full employment, no welfare system will ever
restore the dignity that comes from work."

Countries must "work not only to put in place policies that
prevent crises and minimise their magnitude and adverse
consequences but also to respond to these crises in ways that
maintain as high a level of employment as possible," he urged.

Stiglitz joined the World Bank in February 1997 after a career
in academia and as chairman of President Clinton's Council of
Economic Advisers. He launched several searing attacks on the IMF
and, by extension, the US Treasury-led "Washington Consensus" on
economic liberalisation and global market integration.
His positions won praise from many outsiders and even some
dissidents within the Bank, but caused tension with higher-ups at
the global lending agency, the IMF and the US government.

Nevertheless, insiders have said repeatedly, his open acts of
dissent have served an important political purpose, helping the
Bank to distance itself from its Bretton Woods sibling in the
public eye even as it worked with the IMF to assemble more than
100
billion dollars in financial bail-outs for Asia.

This was considered necessary at a time when Asians were
hurling
brickbats at the Bank for marching in lockstep with the IMF, and
other shareholder governments were accusing the agency of playing
second fiddle to the Fund with their money.
The Bank and IMF continue to push contentious reforms in
investment, banking and corporate governance in South Korea,
Indonesia and Thailand - the countries at the centre of the
regional crisis.

The agencies have demanded that countries open their domestic
industries and financial markets to foreign ownership and
management, and abandon employment protection in favour of
insurance schemes designed to cushion the fall of workers pushed
out of their jobs.
South Korea, for example, has had to promise to let foreigners
buy land, launch hostile takeovers of domestic firms, and increase
their holdings in public companies from the previous cap of 10
percent.

Such concessions are necessary to attract overseas investment,
according to the international financial institutions. But it has
been a troubling experience for Asians to see ambitious ventures
sold off to foreigners.

Additionally, politicians, intellectuals and labour leaders
have
noted that new unemployment insurance schemes offer limited
protection and in any event, will serve only future generations of
unemployed workers.

Almost all of the nearly 7.5 billion dollars the World Bank has
lent to Korea in the past two fiscal years has been tied to
financial, banking and corporate restructuring as well as measures
to ensure labour market flexibility, according to the lending
agency's own figures.
In Thailand's case, the proportion is roughly two-thirds of a
billion dollars in World Bank loans. Indonesia's figures are the
most difficult to discern because the country's international
bail-out has been interrupted and reconfigured a number of times.

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